Asda has teamed up with the Scottish frozen supermarket chain Farmfoods for a
£1.4bn bid for Iceland.

Asda, advised by Barclays Capital, is competing against five bidders aiming for the second round of the sale process this week.

The supermarket is planning to sell almost 200 stores to Farmfoods, which is headed by chairman Eric Herd, is one of Scotland’s fastest growing and largest privately owned companies.

Asda and Morrison’s have both made bids at the top end of the £1.3bn-£1.5bn price range expected, thanks to the £100m of synergies they could each reap. However, they would each have to sell 200 of the 800 stores to avoid competition hurdles. In Asda’s case, most of those 200 stores will be sold to Farmfoods. Morrisons, being advised by Credit Suisse, is lining up Waitrose, Lidl, Tesco, Sainsbury’s and Tesco to take between 20-50 shops each.

The supermarkets are bidding against a quartet of private equity firms: Bain, Blackstone, TPG, and BC Partners. But all parties are expected to be allowed to access the debt package on offer from Bank of America and UBS, which are advising the sales process.

The Iceland deal is a rare example of a deal with financial backing in a volatile market. Its like-for-like growth will match Tesco’s four to one this year.

Iceland’s founder, Malcolm Walker, will now need to decide how to make progress on his own ambitions for company ownership. Along with management, he owns 23pc. He was not obliged to bid in the first round due to a complex share agreement which means he has only to match the highest bidder in order to win the auction.

Mr Walker has, however, now agreed to release more detailed information about the supermarket chain. Buyers will be able to access a region by region breakdown of store profitability that allows them to pinpoint differences between different areas as well as a list of other commercially sensitive data.